Recent Posts:

As a dutiful U.S. taxpayer, you technically already own one-time insurance giant American International Group (NYSE:AIG) thanks to the bailout.

And according to the U.S. Treasury and its regular TARP updates, you still do. About $44 billion of nearly $68 billion disbursed remains outstanding — with almost $2 billion in losses already realized on Uncle Sam’s “investment.”

So please, don’t double down on this money losing bet by pumping your personal investment cash into a troubled AIG. You can’t claw back the tax money that went into this stock, but you certainly can keep your hands off the publicly traded shares of this toxic insurance stock.

Some investors might think this is just hysterics. After all, in February, American International Group reported a whopping $19.8 billion profit for its fourth quarter. Simply stunning for a company that was insolvent just a few years ago, right?

What’s more, AIG stock is up about 20% year-to-date in 2012, and up about 40% since Thanksgiving. Not a bad run!

But here’s the catch: Approximately $17.7 billion of that profit is just a trick of the spreadsheet due to tax benefits.

That’s right — the company that already is beholden to American taxpayers is now making the very galling move of writing off its losses for a tax benefit. And by some estimates, it won’t pay a penny in taxes to the U.S. government until after 2020.

Looks like the American taxpayer is getting taken to the cleaner twice, considering that 90% of the “profits” reported by AIG are just a figment of their accountants’ imagination.

To be clear, AIG is doing nothing illegal. The tax benefit is notable for its size, but the fact is that a host of U.S. corporations find every possible loophole to ensure that the government is paying them each year. Among the list of massive companies that don’t pay a dime in federal taxes are Exxon Mobil (NYSE:XOM), which received a $156 million rebate from the IRS instead of paying taxes in 2011, and Bank of America (NYSE:BAC) which received a $1.9 billion tax refund from the IRS last year.

There assuredly is call for outrage and tax reform — especially considering that these “profits” are the result of a rule that the Treasury unilaterally bent for AIG during the bailout negotiations. But until the law is changed, that’s just the way it is.

Beyond moralizing about taxes, however, the problem is that AIG isn’t nearly as healthy as it seems when you back out this tax windfall. Sure, it is profitable — but not impressively so.

And when you look more deeply at the company, you can see a number of other ugly factors including:

“Bailout overhang” is the biggest issue by far. AIG continues to hold stock offerings and divest assets to get out from under the TARP. Most recently, the company announced it is selling its stake in AIA Group, hoping to raise $6 billion to buy out more of the Treasury’s hefty 77% stake in the company.

Not only is the TARP overhang a strategic problem, since the U.S. Treasury still has its tentacles in the board room, but it’s also a short-term drag as the company worries about repayment rather than growth. How is AIG supposed to focus on growing its business or making strategic partnership when its most attractive assets are simply being priced to sell in order to repay its debts?

And in the long term, if AIG spends the next five years parceling off the best parts of its business … what will be left worth holding onto for investors?

There simply is too much uncertainty surrounding what a “publicly held” AIG would look like after the government is out of the picture. And with constant attention on the federal budget deficit and the need to close tax loopholes, you can be sure that the IRS’ check to American International Group is going to raise the ire of many voters and legislators by Election Day.

It all adds up to a rather gloomy outlook for AIG, even if the headline profits appear impressive.

If you want to speculate, go ahead. But this stock is just too much of a risk for longer-term investors.